A
W
Prociuk:—The
appellant
appeals
from
a
reassessment
by
the
respondent
for
the
taxation
year
1968
on
the
basis
that
it
was
associated
with
Standard
Optical
Company
Limited
within
the
meaning
of
subsection
(4)
of
section
39
and
paragraph
(b)
of
subsection
(5d)
of
section
139
of
the
Income
Tax
Act
as
it
was
then
in
force,
resulting
in
an
increase
in
federal
taxes
payable
by
the
appellant
by
$2,057.
The
relevant
portions
of
the
Act
are
as
follows:
39.
(4)
For
the
purpose
of
this.
section,
one
corporation
is
associated
with
another
in
a
taxation
year,
if
at
any
time
in
the
year,
(a)
one
of
the
corporations
controlled
the
other,
(b)
both
of
the
corporations
were
controlled
by
the
same
person
or
group
of
persons,
(c)
each
of
the
corporations
was
controlled
by
one
person
and
the
person
who
controlled
one
of
the
corporations
was
related
to
the
person
who
controlled
the
other,
and
one
of
those
persons
owned
directly
or
indirectly
one
or
more
shares
of
the
capital
stock
of
each
of
the
corporations,
(d)
one
of
the
corporations
was
controlled
by
one
person
and
that
person
was
related
to
each
member
of
a
group
of
persons
that
controlled
the
other
corporation,
and
one
of
those
persons
owned
directly
or
indirectly
one
or
more
shares
of
the
capital
stock
of
each
of
the
corporations,
or
(e)
each
of
the
corporations
was
controlled
by
a
related
group
and
each
of
the
members
of
one
of
the
related
groups
was
related
to
all
of
the
members
of
the
other
related
group,
and
one
of
the
members
of
one
of
the
related
groups
owned
directly
or
indirectly
one
or
more
shares
of
the
capital
stock
of
each
of
the
corporations.
139.
(5d)
Control
by
related
group,
options,
etc.—For
the
purpose
of
subsection
(5a)
(b)
a
person
who
had
a
right
under
a
contract,
in
equity
or
otherwise,
either
immediately
or
in
the
future
and
either
absolutely
or
contingently,
to,
or
to
acquire
shares
in
a
corporation,
or
to
control
the
voting
rights
of
shares
in
a
corporation,
shall,
except
where
the
contract
provided
that
the
right
is
not
exercisable
until
the
death
of
an
individual
designated
therein,
be
deemed
to
have
had
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares;
..
.
The
appellant
is
a
company
duly
incorporated
under
the
laws
of
Canada
in
1958
and
since
1966
carrying
on
business
under
the
firm
name
and
style
of
Hamilton
Contact
Lens
Centre
in
the
City
of
Hamilton,
Ontario.
Standard
Optical
Company
Limited
(hereinafter
referred
to
as
“Standard”)
is
an
Ontario
corporation.
The
fiscal
year
end
for
both
companies
is
December
31.
In
1968
there
were
only
four
outstanding
and
issued
common
shares
of
the
appellant.
Two
of
these
were
owned
by
Standard,
one
by
Frank
J
Touhey
and
one
by
M
S
Singer.
Touhey
and
Singer
are
dispensing
opticians
specializing
in
fitting
contact
lenses.
On
November
30,
1968
Touhey,
Singer
and
the
appellant
entered
into
a
written
agreement
filed
as
Exhibit
A-1.
Paragraph
8
of
said
agreement
reads
as
follows:
8.
If
either
Singer
or
Touhey
cease
to
be
directors
or
employees
of
HCLC,
the
one
leaving
shall
sell
his
one
share
to
the
other
for
the
net
book
value
at
that
time,
and
the
other
covenants
to
buy
said
share
at
this
price.
If
both
cease
to
be
directors
or
employees,
as
aforesaid,
their
shares
shall
be
sold
to
Standard
Optical
Company
Limited,
which
covenants
to
purchase
same
at
the
net
book
value
at
that
time.
In
testifying,
Mr
Singer
stated
that
earlier
in
the
year
Touhey
owned
two
shares
and
Standard
owned
two.
Touhey
sold
his
two
shares
to
Singer
and
left
for
England.
He
returned
later
in
the
year
and
wanted
to
come
in
again.
After
some
negotiation
Singer
sold
him
one
share.
Singer
instructed
the
appellant’s
accountant,
Edgar
A
Bracht,
to
draw
up
the
agreement
referred
to
above.
Bracht
was
also
the
accountant
for
Standard.
Late
in
December
1968
he
became
a
director
and
vice-
president
of
Standard.
Both
Singer
and
Touhey
attended
at
Bracht’s
office
on
November
30,
1968,
discussed
the
agreement
briefly,
made
some
changes
therein
and
executed
same.
Edgar
A
Bracht
also
testified
and
when
asked
why
paragraph
8
was
changed
from
HCLC
to
Standard
Optical
Company
Limited,
he
replied
that
he
realized
that
the
appellant
could
not
buy
back
its
own
shares
and
Standard
was
substituted.
Standard
is
not
a
party
to
this
agreement,
nor
is
there
any
evidence
that
it
entered
into
any
covenant,
written
or
oral,
whatsoever.
Touhey
went
back
to
England
in
1969
and
Singer
acquired
his
share
in
accordance
with
the
terms
of
Exhibit
A-1.
Standard
still
owns
the
other
two
shares.
Both
witnesses
were
ably
examined
and
cross-
examined
as
to
the
existence
of
any
other
agreement
between
the
appellant
and
Standard
and/or
their
respective
shareholders
with
reference
to
giving
Standard
the
right
to
acquire
the
remaining
issued
and
outstanding
shares.
There
is
no
evidence
of
any
such
agreement,
written
or
oral.
The
respondent
called
no
evidence.
In
his
reply
to
notice
of
appeal,
the
respondent
pleads
as
follows:
3.
In
assessing
the
Appellant
with
respect
to
its
1968
taxation
year
the
Minister
acted
upon
the
following
assumptions:
(a)
In
1968
Standard
Optical
Company
Limited
entered
into
a
contract
to
purchase
the
shares
of
Singer
and
Touhey
in
the
Appellant
company
if
both
ceased
to
be
Directors
or
employees
of
Hamilton
Contact
Lens
Centre.
And,
accordingly
Standard
Optical
Company
Limited
was
deemed
:to
have
had
the
same
position
in
relation
to
the
control
of
the
Appellant
Corpration
as
if
it
owned
the
shares.
Learned
counsel
for
the
respondent
agreed
that
the
issue
here
revolved
around
the
question:
was
there
an
agreement?
He
further
stated
that
Exhibit
A-1
is
not
the
agreement
relied
upon;
and
that
the
appellant
had
not
discharged
the
onus
that
there
was
not
an
oral
agreement.
I
have
carefully
reviewed
the
evidence
adduced
and
find
that
apart
from
Exhibit
A-1
there
was
no
other
agreement.
Standard,
apart
from
owning
50%
of
the
issued
stock,
had
no
rights
accruing
to
it
and
I
cannot
see
how
the
appellant
could
be
controlled
by
Standard
within
the
meaning
of
subsection
39(4).
Also,
the
provisions
of
paragraph
139(5d)(b)
do
not
apply
since
there
was
no
contract
or
agreement
which
would
give
Standard
the
right
to
acquire
the
shares.
In
my
opinion
the
appellant
has
discharged
the
onus
herein
and
the
appeal
is
allowed
and
the
matter
is
referred
back
to
the
respondent
for
reassessment
accordingly.
Appeal
allowed.
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